There has recently been various discussions surrounding the applicability of the of the Consumer Protection Act (CPA) to immovable property leases.

After analyzing the CPA, especially the definition of “services”, there are many that are of the view that the CPA is not applicable to immovable property leases.

“services” under the CPA is defined as including:

1 (f)–a right of occupancy of, or power or privilege over or in connection with, any land or other immovable property, other than in terms of a rental;

By relying solely on the above provision, those who are in favour of the above view argue that the “…act does not include a right of occupancy of immovable property in terms of a rental.” In other words that “services” as provided for in the CPA does not include a lease.

However, the preceeding provision of 1 (f), in providing for what “services” in terms of the CPA means also includes the following:

1(e) (v)- access to or use of any premises or other property in terms of a rental

Surely, even though it has been argued that currently the CPA is absurd in its application to leases, the above two provisions ought not to be read in isolation of one another, but rather should be read together when determining what the definition of “services” entails and therefore whether the CPA is applicable to immovable property leases?

We submit that since 1 (e) (v) already makes provision for the use of premises/property in terms of a rental (which we would argue covers the leases of immovable property), 1 (f) therefore makes provision for the occupancy of immovable property for other purposes OTHER THEN rental.

It is due to the above that we, like many others, such as Ms Elizabeth de Stadler of the Department of Private Law at UCT, argue that the CPA does in fact apply to immovable property leases, as per the definition of “services” stipulated in the CPA.

“The new Consumer Protection Act (CPA) could lend property sellers and estate agents in hot water should they fail to allow buyers to scrutinise all relevant documentation prior to signing a sale agreement. Conveyancing attorney Meyer de Waal in consultation with key industry associations and service providers, has created the Property Transaction Kit (PTK), which aims to protect all parties involved in a property transaction and allows for a structured process through which all parties can access relevant compliance material. ‘Once a seller registers for the service, the PTK team will access a database of accredited service providers to source all the relevant documentation and issue certificates of compliance pertaining to the property.’ Says Meyer. ‘The documents are then loaded onto a virtual “property vault” on the PTK portal. There the seller, estate agent, buyer, attorney or bank can access the information securely.’ Such a kit may prove crucial in terms of the CPA, property buyers can now attempt to hold sellers and their estate agents responsible for defects or non-disclosure of property faults, even months after taking ownership. Past property sales contracts typically included a voetstoots clause protecting sellers from defects that buyers could identify, but not against defects that the seller didn’t know about and therefore could not disclose. Sellers must now ensure the inspection and evaluation of sale properties by accredited service providers. Buyers can agree to buy the property as is, or they can request that the seller repair any faults before purchase.

Propertytransactionkit.co.za

Please note that the above piece is not the work of Oosthuizen & Co Meyer de Waal, but rather that of the Property Magazine, (Western Cape). You may therefore access this article and others alike from:

“Inflation up but interest rates steadyThe consumer inflation rate was higher than predicted, rising to 4,6% in May and up from 4,2% in April but economists have not yet revised predictions on a hike in interest rates by the Monetary Policy Committee of the South African Reserve Bank.”

Another great coverage for the PTK in the news (property.iafrica.com).

For an interesting and informative read on the Consumer Protection Act (CPA) and how the PTK ties in perfectly in achieving the objectives of the CPA with regards to property transactions, please follow this link:

PLEASE NOTE THAT THIS ARTICLE IS THE PRODUCT OF PRICEWATERHOUSECOOPERS (PwC) SOUTH AFRICA AND OOSTHUIZEN & CO MEYER DE WAAL HAS BEEN GRANTED PERMISSION TO POST IT.

VAT relief is in the pipeline for temporary rentals by property developers

Property developers, who have no choice but to temporarily rent out their fixed properties due to the weak fixed property selling market, can look forward to temporarily VAT relief.

VAT implications of fixed property transactions

As property developers must charge output VAT on the sale of fixed properties developed by them, they may also deduct the VAT paid on building and construction costs as input VAT. Residential property lessors, on the other hand, do not charge output VAT, but may also not deduct input VAT.

If a property developer has developed a property for purposes of selling it (subject to 14% VAT), but subsequently makes a business decision to rather rent out the property (which will be exempt from VAT), he must make a change of use adjustment by accounting for output VAT on the market value of the property.

Temporary rentals

Due to the weak property market, many property developers cannot sell their properties and are forced to temporarily rent out the properties in an attempt to obtain cash inflows to cover their costs.

The view is held that a change of use adjustment is not required where the ultimate purpose remains to sell the property at a commercially viable price, but the property is merely temporarily rented out. SARS, however, requires property developers to make the change of use adjustment and account for output VAT in such a case.

Proposed relief

SARS has now realised that, to expect of developers to make a VAT change in use of adjustment when renting a property only temporarily, could force certain VAT developers into insolvency.

Draft legislation, therefore, proposes that temporary relief (until 2015) be granted to developers who rent residential fixed properties for a maximum period of 36 months before sale. If the vendor rents the property beyond the 36-month period, output VAT will be payable on the market value thereof at 36-month cut-off date. This will apply to any change in use (i.e. temporary rental) on or after the date of promulgation of the Amendment Act, but before 1 January 2015. SARS has stated that this is meant to be merely a short-term solution and that once all issues have been fully considered; a permanent solution will be introduced.

The proposed relief does not address the predicament of property developers who have already let their properties prior to the amendment coming into effect or have had SARS force them to account for the change in use. Those vendors would have to carefully consider their options to prevent unforeseen VAT costs from jeopardising the viability of their development.

Our team of indirect tax specialists is available to assist in this regard. Your contacts are listed below.